How to invest in mutual funds with or without demat account

Recently, a reader of ours asked a query on how to invest in mutual funds so we thought to bring up a write up on that. The post details on how to invest in mutual funds with or without Demat Account. We will also explore on how to invest in mutual funds through various channels.

Investment into mutual funds have grown tremendously over the years and mode of delivery has also improved. Earlier where only large financial institutions and Financial advisers dominated the market but now there are many options to choose from. And, first-time investors get really confused on whom to approach to buy investment plans.

How to invest in mutual funds Without Demat AccountThe First Thing
Those who are first time investor in a mutual fund need to possess certain documents which are compulsory. These include PAN Card, a Bank Account (should belong to the investor), a cheque book and should be KYC (know your customer) compliant. These are the basic documents one needs to have if they are investing in a mutual fund. Those investing through online should have a proper digital payment mode.

For the first time investors, it is normal to not be a KYC compliant. To be a KYC compliant individual, he/she needs to submit the KYC application form with following documents to the financial advisor or fill e-KYC (if doing online) to get registered.

Those who have completed the process earlier can check the status through this website.

Different Channels for investing in a Mutual Fund

Through Financial Institutions
There are wide range of financial institutions that offer mutual fund service. These include Banks, stock brokers and distribution companies. These institutions are required to have registration with AMFI (Association of mutual fund of India) to be eligible to offer the services.

Independent Financial Advisor (IFAs)
IFAs offers personalised investment service to the investors. This ranges from investment consultation to managing the portfolio. IFAs act as an agent for the Asset Management Companies(AMC) and sell it to the customers. AMC pays IFAs commission on the sale of every mutual fund schemes. These commissions are included in the mutual fund expense ratio.

Directly from Asset Management Companies (AMC)
An investor can directly approach the asset management companies (through office or online) to make an investment in the schemes. Investing directly through AMC gives you the benefit to invest in direct plans which is not available with the Financial Institution and Independent Financial Advisors.
Also read How to invest in direct mutual funds

Through Online Portals
Nowadays, Mutual fund services are also offered through third party online portals. These online portals can be hosted by private players or govt. backed institutions. These portals have to be mandatorily registered with AMFI, in order to provide the services. Following are the list of important online portals through which you can invest in mutual funds.

Recently, many mobile wallet companies including Freecharge and Paytm, have started to offer financial services in their platform including mutual fund and insurance, but it is better to wait for the platform to mature enough.

Investing in mutual funds With Demat Account

An investor can also make investment in mutual fund through their Demat Account. For this, the investor needs to place an order with the broker he/she is maintaining account with. The investor needs to provide all the details of scheme he/she interested with and the amount will get deducted from the bank account linked with the Demat Account.

All the unit purchased gets credited into the Demat Account. It helps the investor to track the investment portfolio easily without the fear of loss of units.

Investors investing through other channels other than Demat account can also transfer their mutual fund units to the Demat Account. The simple steps involved in to transfer the units are:

Obtain a CRF form from your Depository Participant (DP)

Submit the CRF form with details along with Statement of Account with the DP

After verification of the form, your DP will send it to AMC/ Registrar for further process

After the verification of details by AMC/ Registrar, the transfer of all units will be executed by the DP and will get credited in your account

Conclusion

As we have discussed various options to invest in the mutual fund in details, it is better to know which platform is suitable for which type of investors. Those investors who are investing for the first time in the mutual fund and those who have limited knowledge on the subject should opt for consultancy based options like Independent financial advisors, Financial institutions and online portal like bodhik who can help in making the investment plan more effectively. The seasoned investor can opt to invest directly through AMC, MFutility. The segregation is only for the knowledge purpose and investor can choose any platform according to their need.

@jatinderchd Online demat and trading account is a pre-requisite for availing different services from reputed stock brokers. The process of investing has become much simpler owing to the online platforms. Things have become much easier as compared to earlier years.
Less paperwork and online uploading of documents saves a lot of customer's time. We can also access our online demat and trading account easily. All you need is a computer and a good working internet. I mean, we can invest, trade and also view our portfolio online. It's just that easy!

They are right in saying that with Stock Brokers, you require an account. You can invest in mutual funds with RIA or Mutual fund Agents as well where you dont require a demat account. So investing with Stock Brokers or RIA is a different thing altogether.

@jatinderchd Hi, I got a recent mail asking "Have you converted your physical shares to demat form?" Does it mean, Demat account is now compulsory? What about validity of existing physical shares, if any? Please tell.

SEBI has long before made it compulsory to convert all your paper shares to demat form. Infact, new shares can be issued in demat form only, for old paper shares, you have to convert them into demat form compulsorily.

@KP_Trader Kuvera is indeed a good solution. Whenever I invest more, I'd go for Kuvera only. But like every providers, selling data is what concerns me as they are not making money from this service. Btw, thanks for suggestion.

SEBI is the mutual fund regulatory body in India. It is the Securities and Exchange Board in India which is the main regulator of securities market. Hence it is also the regulator for mutual fund investments in the Indian market.
AMFI however is a nodal association of mutual funds across India. It contains details on all the registered asset management companies in the country.

ELSS is Equity Linked Saving Scheme which is typically tax-saving mutual funds. In terms of structure, and functioning, an ELSS is exactly like an equity-oriented mutual fund scheme.
However, unlike a typical diversified or multi-cap fund, it provides tax benefits under section 80C of the Income Tax Act.
ELSS funds have a lock-in period of 3 years. Suppose if you invest a particular amount on September 1, 2019, then the amount can be redeemed on September 1, 2022.
Also, investing in ELSS opens up the possibility of earning superior returns as compared to other tax-saving instruments like fixed deposits and government small savings schemes. I have named few of the best ELSS mutual funds below:
SBI Tax Advantage Fund – Series II – GrowthELSS
Kotak Tax Saver Scheme – Direct Plan – GrowthELSS
Axis Long Term Equity Fund – GrowthELSS
Invesco India Tax Plan
Tata India Tax Savings Fund
Apart from saving taxes, investing in ELSS Fund can be a good diversification to your portfolio. An ELSS fund can provide you an impressive return ranging from 15-18%.
Note: These are my personal views and not professional advice in any regard.

@vikas_nair Yes, I too agree with your point. Real estate involves lumpsum money that one can afford only if he has surplus amount. While mutual funds allow you to invest smaller amounts as per convenience.
FDs these days give very low returns after tax. So, I would also prefer to go with Mutual funds only. At least I can withdraw my money when needed. There's a hope to get better returns as well.

In a way, there are a lot of similarities between Mutual Funds and Hedge Funds. In the both types of investments, a group of investors pool their money and invest in different type of securities. The main misconception about the funds is that people think that they are similar and the terms are interchangeable. In reality, they are not same and there is a very thin line between them. The main difference between these two funds is that in a Hedge fund the number of investors is very less while the Mutual fund has a large number of investors.
Mutual Funds
In simple words, a mutual fund can be considered an investment vehicle in which a group of people pools the money and a fund manager invests those funds in different securities. The manager often charges a fee for the administration of the fund, which depends on the size of the investment.
Hedge funds
A hedge fund is an investment portfolio which is managed under investment partnership. These types of funds are a private portfolio of investments which uses highly advanced strategies for the investment and risk management.
The key differences between Mutual and Hedge funds
A hedge fund is a privately owned portfolio investment in which only a few investors are allowed. However, a mutual fund is a professionally managed investment plan where a number of investors pool their money to buy securities.
The main aim of hedge funds is assured returns while mutual funds aim at relative returns.
The owner of mutual funds can be thousands in number while in hedge funds the number of investors is very limited.
The hedge funds are managed with highly advanced strategies and risk management techniques to ensure good returns which are not in the case of mutual funds.
The hedge funds have high profile investors while the mutual funds include retail investors who invest relatively small amounts.
Hedge funds have very limited regulations from the government side, however, in the case of mutual funds, the Securities Exchange Board of India (SEBI) issued guidelines from time to time.
In the hedge funds, the management fees depend on the returns on the investment while in the case of mutual funds the management fees depend on the assets that are being managed.
In mutual funds, the asset manager does not hold any substantial interest while in hedge funds the person or company that manages the funds also owns a large part of the investment.
When it comes to mutual funds, the reports about the investments and returns have to be published yearly. Also, the disclosure of the investments has to be made public every six months. While in hedge funds the information about the investments and returns is released to the investors only.
Conclusion
The investments in both funds depend basically on the recourses you own. If you have a lot of funds you can invest in hedge funds. In case you have limited resources, you can choose to invest in one or two mutual funds depending on what kind of returns you are looking for.

@brokerdude Hi, I think direct plans allow free of cost investing only irrespective of platform. Is it true? Please clarify on it. I heard many such platforms offer free incvesting only. So, it doesn’t matter with whom you are investing. Or is one investing portal different from other?

@vikas_nair Hi, I think the scenario has bit changed after introduction of tax on Capital Gain on equity @10% recently. Now, capital gain from equity in excess of Rs.1 lakh are subject to tax. So, ELSS is no longer a tax free instrument. Although, the contribution to ELSS still counts for deduction under section 80C. But, I think this LTCG tax shall have big impact on investor's mind, they will get reduced returns. What do you think?

@Ishu I always get this question: when should I start investing? And I always answer the same as Warren Buffet says "Start investing as early as possible to start reaping the benefits at the right time”.
The decision to create your investment portfolio is based on permutation and combination in between risk and returns. There is always a set of mixed options to choose to create your own investment portfolio.
And, the one that fulfils your goals is the "best investment" for you.

Disclaimer: Any views/recommendations expressed in the forum, of the individuals are their own only. Fintrakk doesn't endorse or recommend any financial product or views by the users of the forum. The information/comments on the forum should not be considered as a financial advise. Please do your own due diligence before investing. Fintrakk is not responsible for any financial loss to any of its visitor/user.